Whether you are a real estate agent or a mortgage broker, getting your client into their new home is a tough job. However, often times many homebuyers find themselves stuck between that proverbial rock and a hard place. They need to purchase a new home, but they must sell their current one first. Numerous challenges present themselves here, not the least of which is that without selling their current home, most Americans either lack the money for a down payment and closing costs on a new home, or they don’t income qualify to hold two mortgages at the same time. However, a bridge loan can provide the funding necessary to buy that new home now, allowing them to move once and sell their current property afterward.
Can A Bridge Loan Be Cost-Effective?
Bridge loans are often overlooked when it comes to moving from one home to another. That’s unfortunate. They offer a great deal of value, traction, and even financial savings in some instances. Whether your clients live in a particularly competitive market, need to make upgrades to their current home before selling, or are struggling to find a seller willing to accept a contingent offer, bridge loans can be cost-effective, simple solutions that deliver flexibility, agility, and other advantages.
Our Results: A Portfolio of Bridge Loan Success Stories
Anyone can claim their program is successful, but that does not make it the truth. We understand that there may be some confusion over just how well bridge loans work, the benefits these financial tools can offer, or how they can be cost-effective in actual practice. To illustrate these points, we’ve outlined several success stories, detailing precisely how bridge loans have been beneficial in real-world examples. Here’s a list of situations, with their stories found below.
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- Helping Retirees Downsize Without First Selling Existing Home
- Growing Family Wins Against Multiple Offers using a Non-Contingent Bridge Loan
- Closing on a Purchase by Crossing their Existing Home in Contract
- Great Credit, Good Equity, but Don’t Qualify for Two Mortgages
- Solving a Typical Self-Employed Homebuyer Dilemma—Seasoning and Reserves
- Bridge Loan Provides Ability to Make Non-Contingent Offers
- High Debt-to-Income Ratio Presents Challenge
- Unexpected Credit Damage Risks Losing Deposit on New Home
- Providing Purchase Funds During a Divorce
- No Mortgage Debt, but Limited Income Issue
- Tapping Homeowner Equity Using Future Income
- Inconsistent Income a Barrier for Bank Financing
1. Helping Retirees Downsize Without First Selling Existing Home
Many retirees find that downsizing is an ideal option to get a more manageable home and property. However, not all of them can afford to liquidate hard-earned savings and investments to do so. A prominent CPA who understood the bridge loan tax benefits of being able to write off the loan origination points contacted us about just such a situation.
We were able to qualify the couple based on the equity in their home, rather than employment or income. With a bridge loan, they were able to downsize to the perfect property in Florida without sacrificing investments or other assets.
2. A Growing Family Wins Against Multiple Offers using a Non-Contingent Bridge Loan
A growing family had located the ideal home for them in Los Altos Hills. However, while the property offered more than enough room for their two growing children, there were multiple all-cash offers on the table. How could they compete with that?
We were able to facilitate a non-contingent offer with a 14-day close, secured with a $2.1M bridge loan. With that offer in hand, the family was able to outclass all the other offers and buy their dream home in record time.
3. Closing on a Purchase by Crossing their Existing Home in Contract
Borrowers in Novato, CA, faced an issue with cross-collateralization. They owned a home in Larkspur, which was already listed on the MLS but had not yet sold. While that home was on the market, the borrowers contracted to purchase a property in Novato.
However, the COE data would not provide enough time for their original home to sell, which meant they could not use the proceeds from that sale to purchase the new home. Needless to say, conventional banks weren’t keen on the idea of lending on two properties simultaneously.
Because we can cross-collateralize on multiple properties, we were able to extend the borrowers a bridge loan. With the funds, the borrowers were able to purchase their dream home in Novato and then pay off the bridge loan when their Larkspur home sold.
4. Great Credit, Good Equity, but Don’t Qualify for Two Mortgages
We worked with clients in Tiburon, California, who wanted to buy a new home without the hassle of waiting for their current home to sell. To achieve their goals, the borrowers needed $2M to close on a $2.6M home. Their current home was valued at $2.1M, but was not yet on the market, as the borrowers wanted to wait until spring when demand for properties would be higher.
Both borrowers were well-qualified for conventional financing, with credit scores of 800+ and strong assets. Despite that, conventional lenders denied their loan, citing an inability to afford two mortgages. Applying for a bank loan would take too long and their dream home would have been purchased by someone else.
We provided $2M for the bridge loan, allowing the borrowers to complete the purchase and move into their new home on their schedule.
5. Solving a Typical Self-Employed Homebuyer Dilemma—Seasoning and Reserves
A self-employed professional in Petaluma, CA, sought a loan to purchase a primary residence. A successful entrepreneur, he owned several businesses already. However, supporting those businesses required regular shifting of funds from one account to another.
Conventional lenders require seasoning before they will consider funding as belonging to an individual, but because of the need to move funds from business to business, they perceived the borrower as being unstable.
We assessed the borrower’s situation and examined the need to move funds from business to business. Convinced of the borrower’s ability to repay, we offered a bridge loan that enabled him to purchase a home in Petaluma. Then, once the borrower had established history and was able to prove stability, he refinanced out of the bridge loan and into a conventional loan.
6. Bridge Loans Provide the Ability to Make Non-Contingent Offers
A family found their dream home in Tiburon, CA, right before it went on the MLS. However, to win the property, the family had to make a strong, non-contingent offer. They also needed to do so very quickly.
We were able to approve them for a $2.5M bridge loan within just six hours of receiving their application. Our loan agent had a strong relationship with the listing agent and assured her that the offer was as good as cash. The family closed on their dream property in only 21 days.
7. High Debt-to-Income Ratio Presents Challenge
For many Americans, debt is a fact of life. However, it does not have to mean being unable to purchase your dream home. A couple with two kids found their dream home in San Rafael, CA, but because of their debt-to-income ratio, conventional lenders were unwilling to help.
We were able to offer the couple a $1.37M bridge loan despite their debt. They closed on the home in just 17 days. Within two months, the couple had sold their first home and used the proceeds to pay off the original mortgage, the bridge loan, and then refinanced into a conventional long-term mortgage with a great rate.
8. Unexpected Credit Damage Risks Losing Deposit on New Home
A husband and wife contracted to buy a new-build property in Danville, CA. They had a very large deposit and a strong financial position. A successful close seemed inevitable.
However, during the final days of a six-month escrow, a second credit pull by their lender uncovered an erroneous tax lien. While ultimately inaccurate, the lien caused significant immediate damage to the borrower’s credit and threatened their ability to find funding. No extensions meant that the lien could not be resolved in time for closing. The borrowers faced the very real threat of not just missing out on their property of choice, but of losing their substantial deposit.
We understood the borrower’s position and saw that while the tax lien was solvable, it would take time. We were able to offer a loan to complete the purchase of the Danville home, and then the borrowers paid off the loan through refinancing once the lien error was corrected and their credit was restored to its former strength.
9. Providing Purchase Funds During a Divorce
Divorce is rarely a pleasant thing, and that is precisely the position a Marin County mother found herself in. However, during the divorce, she located the perfect property in Wine Country set on 10 acres and ideally suited for her and the children. However, two weeks into the process, her loan was denied. Her lender refused to work with her because of the divorce. She also learned that another buyer had made an offer for $300,000 over what she was offering.
Her agent referred her to us on July 3rd and we offered a $1.6M bridge loan to help her close on the property. With funds in hand, she was able to counter the other offer and get back on track, closing on the home by July 22nd.
10. NoMortgage Debt, but Limited Income Issue
A retired couple in San Jose, California with a limited income found themselves in need of downsizing their home. Their dream property was already on the market, listed for $1.1M. However, the market was intensely competitive, and to ensure they could purchase the home, the borrowers had to move very quickly.
Immediately, the borrowers encountered significant trouble. Their current home was appraised at $2.6M and was owned outright, theoretically providing more than ample funding for the purchase of a new property. However, their conventional lender could not qualify them based on income, nor could they cross-collateralized the existing home. Of course, the borrowers did not have time to wait on a lengthy closing process for their current home.
We provided a loan for $1.1M to cover the entire purchase of the home and crossed the borrower’s first home with their new one, using the significant existing equity to make a low LTV loan.
11. Tapping Homeowner Equity Using Future Income
An attorney in San Francisco, CA, found himself embroiled in a significant lawsuit for a client that was expected to continue for 12 to 18 months. During this time, he required funding for office operations. He sought a loan of $375,000 as a second mortgage on his existing home. The attorney had an existing loan of $2.5M as the first mortgage, very strong credit, and lots of equity in the home, which was valued at $11M.
However, conventional lenders could not offer him a solution because he could not prove regular income while working on the lawsuit in question. With our loan products, we can look at future income in order to confirm ability to repay. We were able to offer him a loan for $375,000 in second position and the total loan to value ratio of both loans was only 26%. The attorney was able to pay off the loan when the case finally settled.
12. Inconsistent Income a Barrier for Bank Financing
A borrower had found the ideal home for his family in Kentfield. However, with multiple business ventures, his income was inconsistent. Conventional lenders did not want to take a chance on him, and the clock was rapidly ticking down.
We understand that despite his inconsistent income stream, the borrower was actually very low-risk, so we advanced him a $2.7M bridge loan. He and his family were able to close on their dream home just five days later.
In Conclusion
At Pacific Private Money, we believe that everyone deserves the chance to purchase the home of their dreams. As a holistic lender, we can help clients that conventional lenders usually turn away. We also work with real estate agents and mortgage brokers to ensure they have the means to better serve their clients. Our Buy Before You Sell plug-in program is just one example of how we help ensure better access to bridge loans and the funding necessary to make dreams come true.